EMERGING MARKETS-Brazil real slumps on intervention, Mex peso dips

Reuters Staff

4 Min Read

* Brazil cenbank sells reverse currency swaps to weaken real
* Chilean markets closed for holiday, reopening on Thursday
By Natalia Cacioli
SAO PAULO, Sept 17 (Reuters) - The Brazilian real slumped
nearly 1 percent on Monday as the central bank intervened to
offset possible dollar inflows stemming from last week's
announcement of aggressive U.S. stimulus measures.
But Latin American currencies still appear poised to
appreciate after the decision by the U.S. Federal Reserve to
launch a third round of its bond-buying program. The move is
expected to push yield-hungry investors into emerging markets,
strengthen local currencies and potentially hurt the region's
exporters.
In Brazil, the government has so far been able to dodge the
effects of the Fed's measures by stepping up intervention in the
foreign exchange market. The central bank on Mo nday sold reverse
currency swaps, derivative contracts that mimic the purchase of
dollars in the futures market.
"What's important is that the central bank gave a warning
sign and markets are observing it," said Italo dos Santos, a
currency specialist with Icap brokerage in Sao Paulo.
In less than one week, the central bank has sold about $5.7
billion worth of reverse currency swaps. The swaps were sold in
four separate auctions, whenever the real strengthened toward
the level of 2 per dollar.
The latest of them drove the currency 0.94
percent weaker to bid at 2.0296 per dollar.
Under the threat of central bank intervention, the real has
been trading within the narrow range of 2.0-2.1 units per dollar
since early July.
In Mexico, the peso weakened 0.22 percent to 12.7675
per dollar as investors took a breather after driving the
currency to its strongest level in more than five months on
Friday.
"Some low-level profit-taking is expected after the recent
rally," Actinver analyst Jaime Ascencio wrote in a note, noting
the cost of dollars in pesos had hit support at 12.73 per
dollar.
The Mexican peso has led gains in Latin America, firming
more than 3 percent this month.
Investors consider Mexico's central bank as the least
likely to intervene in currency markets. The bank is committed
to a free-floating currency and a stronger peso could also help
policymakers fight a recent spike in inflation.
Chilean markets are closed for a national holiday and will
reopen on Thursday.
Latin American FX prices at 2051 GMT:
Currencies daily % year-to-
change ate %
Latest change
Brazil real 2.0311 -1.01 -8.01
Mexico peso 12.7675 -0.22 9.41
Argentina peso* 6.2800 0.48 -24.68
Chile peso 470.6000 0.00 10.35
Colombia peso 1,798.5000 -0.28 7.78
Peru sol 2.6020 -0.31 3.65
* Argentine peso's rate between
brokerages